Anna Karklina
Aalborg University
MSc European Studies Master’s Thesis
Supervisor: Dr. Wolfgang Zank
31/05/2016
The European Commission published the Digital Single Market strategy on May 6 2015. The inclusion of the strategy in the top political priorities of the Commission President Jean-Claude Juncker demonstrates the political will of the current Commission to deliver the digital single market, where previous attempts have been fragmented and less successful. The strategy rests on 16 policy initiatives across 3 policy areas – better access, encouraging businesses to grow and creating the right conditions to ensure the growth of the digital economy in the EU. As its primary justification for the strategy, the Commission has focused on the consumer and business benefits that will follow from the creation of a digital single market. The ambitious scope of the strategy however, does threaten to open Pandora’s Box, as the Commission risks not delivering on its initiatives in due time and introducing legislative measures that will introduce new regulatory barriers in the digital market rather than remove them.
This paper seeks to expand on the question “Why did the European Commission launch the Digital Single Market?” and examine it from two other perspectives: the strategy as a means for the Commission to expand its competences; and the strategy as a response to stakeholder dissatisfaction with the existing fragmentation. Given its large scope, six elements were chosen from the strategy: cross-border e-commerce and parcel delivery; value added tax; geo-blocking; personal data protection and cross-border portability of online content.
The findings demonstrate two issues. Firstly, the strategy is an opportunity for the Commission to expand its competences on a more general level, i.e. it enables the Commission to become the leading European institution on digital issues. This is reflected in the creation of two Commissioners for digital issues. The strategy also enables the Commission to enhance its authority and oversight in certain areas (e.g. cross-border parcel deliveries and VAT regime), and also attempt to create completely new competences. This is particularly demonstrated in the Commission’s stance regarding geo-blocking, as the Commission has deemed the current regulatory framework to be inefficient (contrary to the views of stakeholders, who have expressed that it merely requires increased enforcement efforts) and therefore requires new legislative measures.
Secondly, the analysis shows that although stakeholder concerns were a driving force behind all six of the issues examined here, only in two cases (personal data protection and cross-border parcel delivery) were stakeholders given the opportunity to voice their concerns prior to the Commission’s proposals of new policy measures. The Commission and stakeholders are able to act in a synergy: even though it is the Commission who in most cases has set the agenda on digital development, stakeholders are able to exert influence, and in many cases the Commission has been receptive to their concerns. The analysis does not suggest the superiority of one reason over another; rather, they are all interconnected and demonstrate that the Commission’s motives go beyond merely providing consumer benefits.
Table of contents
Introduction
Methodology
Part 1: Theories of European integration and agenda-setting
Neo-functionalism
Theories of competence maximisation
Policy entrepreneurship
Agenda-setting and issue framing
Part 2: Stakeholder dissatisfaction with fragmentation in the digital market
Cross-border e-commerce
Cross-border parcel delivery
Value Added Tax
Cross-border portability of online content
Personal data protection
Unjustified geo-blocking
Analysis
Conclusion
Bibliography
Introduction
The European Commission (‘the Commission’) launched the Digital Single Market strategy (‘DSM strategy’) on May 6 2015. The creation of the digital single market was announced as one of the top political priorities by the Commission President Jean-Claude Junker in 2014, and as such is one of the most ambitious political projects the Commission has undertaken in the recent years. The Commission estimates that the creation of a fully integrated digital single market will contribute approximately 415 billion EUR to European economy as well as provide increasing opportunities for innovation and jobs within the European economy. A fully integrated digital single market will ensure that the free movement of goods, services, persons and capital which exists in the offline will also exist online. The DSM strategy seeks to achieve this through 16 targeted initiatives to be fully launched by the end of 2016. These initiatives are based on 3 key principles: firstly, ensuring that European consumers and businesses have access to digital goods and services; secondly, creating the right conditions to enable European businesses and other digital services to be able to innovate and grow; and thirdly, maximising the potential of the digital economy.
Vice-President and Commissioner for the Digital Single Market, Andrus Ansip stated that “…the strategy is our starting point, not the finishing line” (European Commission, 2015j). Whilst he might be correct in stating that the DSM strategy in itself is not the creation of the digital single market, it is not the first time the Commission has attempted to foster the growth of it. In 2010, the Commission presented the Digital Agenda for Europe as one of the flagship initiatives under the Europe 2020 strategy. The Digital Agenda also explicitly made reference to the creation of the digital single market and even addressed some of the same issues, such as digital literacy, and data protection.
The DSM strategy is the first time the Commission has comprehensively addressed the creation of the digital single market. The aim of this paper is to asked the question “Why did the Commission launch the Digital Single Market strategy?” and to approach it from two different perspectives that go beyond the mere argument that it will bring increased consumer benefits. The first part of the paper will examine theories of agenda-setting and competence-maximising and how they relate to the Commission. The second part of the paper will examine several key elements of the DSM strategy and the extent to which they have been placed in the strategy due to stakeholder dissatisfaction with the current level of fragmentation in the digital single market. It will also examine the extent to which the Commission has responded to, or is planning to respond, to stakeholder demands.
Methodology
Given the large scope of the strategy, six elements of it have been chosen for analysis: cross-border e-commerce and parcel delivery; Value Added Tax (VAT); unjustified geo-blocking; cross-border portability of digital content; and personal data protection. These issues were chosen for several reasons. Firstly, unjustified geo-blocking, VAT and issues within cross-border e-commerce and parcel delivery represent some of the key challenges to delivering the digital single market. Additionally, the modernisation of the personal data protection framework and the ability to travel within the EU with legally acquired content are also some of the key consumer expectations which the DSM seeks to address. As a result, whilst not being fully representative of the DSM strategy as a whole, these six issues are representative to the extent that they depict some of the biggest challenges the Commission seeks to address through the DSM strategy. Secondly, due to the fact that a majority of these issues have been on the Commission policy-agenda prior to their inclusion in the DSM strategy, the amount of information available was substantial.
The analysis is firstly based on several academic theories of European integration and competence-maximisation, which were chosen for their relevance rather than so they could be disproved. Secondly, the analysis is based on the examination of policy documents from the Commission (e.g. Communications, Green Papers and reports conducted on behalf of the Commission), as well the responses to the relevant public consultations from the Commission. Here it is important to note that the Commission alongside publishing the responses to the consultations on its website also has on many occasions published summary reports on the responses. Given the fact that many of the Commission’s consultations receive several hundred responses, the summary reports were used as the basis for analysis in order to save time and resources. Whilst these reports are incredibly useful as they provide a comprehensive overview of the perspectives of the various stakeholder groups, one obvious drawback is that they are generalised and do not provide specific examples of stakeholder opinions. Additionally, in one particular case where there was no summary report available for the results of the consultation but the responses themselves were published, a small selection was chosen from the non-anonymised responses. The selection took into account the variety of stakeholders who replied in order to be somewhat representative of the opinions expressed.
Part 1: Theories of European integration and agenda-setting
Neo-functionalism
Neo-functionalism emerged at the end of the 1950s following the publication of Ernst Haas’ major work, The Uniting of Europe which has since become one of the defining works of European studies. Haas provided an account of the early stages of European integration following the Second World War through examining the key actors both at the national and supranational level. Haas attempted to formulate a grand theory: an objective examination of regional cooperation which could be applied to other cases throughout the world (such as Latin America, which Haas himself examined). His approach is rooted in the pluralist school of thought, which at the time was the dominant political science theory in the United States (LelieveldtPrincen, 2011). Pluralists conceive politics to be a group-based process, in which the interests of the parties will eventually organise to decisively impact decision-making. This approach can be seen in Haas’ definition of integration, as he views political integration as the decision of national governments to shift a share of their activities to a new political centre:
The process in whereby political actors in several distinct national settings are persuaded to shift their loyalties, expectations and political activities toward a new centre, where institutions possess and demand jurisdiction over the pre-existing national states. The end result of a process of political integration is a new political community, superimposed on the pre-existing ones. (Haas, 1958, p. 18)
The core neo-functionalist concept is spillover. It refers to the manner “in which the creation and deepening of integration in one economic sector creates pressures for further economic integration within and beyond that sector and greater authoritative capacity at the European level” (Rosamond, 2000, p. 60). Lindberg’s (1963) “general formulation” (p.10) of spillover highlights that the pressures of integration will themselves create conditions for further action and so on. Integration via spillover is thus a self-perpetuating process, with the European institutions playing a core role in order to facilitate integration which otherwise would not be possible with only inter-state cooperation.
Spillover exists in three varieties. Firstly, functional spillover is technical in nature and based on the premise that the full benefits of integration can only be achieved if integration also takes place in related sectors. Haas (1958) pointed out that the first steps towards integration (the creation of a common market for coal and steel) had been completed and recognised that supranational authority in one sector only could not be sustained. Hence the creation of the European Economic Community (EEC) and European Atomic Energy Community (Euratom) was the functional spillover of the European Coal and Steel Community (ECSC), as they took further integrative steps in neighbouring sectors. The creation of the single market is an example of functional spillover: the abolition of tariffs between Member States led to the necessity of stabilising exchange rates which in turn led to demands for a single monetary policy and a single currency and the eventual creation of new supranational European authorities (LelieveldtPrincen, 2011). Additionally the Schengen Agreement to abolish passport and other border controls placed new items on the policy agenda such as crime prevention, illegal immigration and police and judicial cooperation; issues which themselves necessitated further cooperation between Member States in order for the agreement to be fully effective (Jensen, 2000).
Secondly, George (1991) identifies a second stream known as political spillover which describes integration as driven by pressures exerted by national interest groups. Haas had already acknowledged that interest groups operating at the European level would realise the benefits of European integration, and shift their demands from the national level to the supranational, adding pressure for further integration (Pollack, 2015). The European Round Table of Industrialists (ERT), an influential lobby group consisting of around 50 of the major industrial corporations in Europe is a well-known example of political spillover. ERT were especially active in promoting the creation of the single market and the adoption of the Single European Act (SEA); they were also strong supporters of EU enlargement towards Central and Eastern Europe (LelieveldtPrincen, 2011).
Thirdly, cultivated spillover refers to the active role of supranational actors such as the Commission, ECJ and the Parliament in promoting further integration. Supranational actors might do so in the process of mediating between Member States (Tranholm-Mikkelsen, 1991; Niemann, 2006), as well as through formal means such as ECJ court rulings. Thus landmark rulings such as van Gend den Loos; Costa v ENEL; Cassis de Dijon; Dassonville, are examples of cultivated spillover as ECJ actively fostered integration. Pollack (2015) also states that the Commission often encourages shifts of loyalty of interest groups to the European level, in order to strengthen the argument of ‘common European interest’. This presents the possibility of the Commission only becoming receptive to arguments which promote further European integration, whilst ignoring arguments based on national policy interests (Jensen, 2013).
Political elites (politicians, lobbyists, high-level civil servants) and interest groups play an important role in the theory of neo-functionalism. Interest groups have already been mentioned as being driven to engage in European integration to further their own interests, rather than any particular ideology for a united Europe (Jensen, 2013). ERT for example, was motivated by the opportunities the single marked offered for the ease of production and distribution of their products throughout Europe, as well as the possibility of new markets in Central and Eastern Europe. Another role played by interest groups is that of coalition building with the Commission. Through roundtables, working groups and committees, interest groups become political allies and advocates of the Commission’s stance vis-à-vis national governments and other policy actors (Mazey & Richardson, 2001;Sandholtz & Stone Sweet 2012). The elitist approach neo-functionalism assumes towards political actors is best encapsulated through the concept of permissive consensus. It refers to the implicit support assumed by top actors for further integration by the European people. Permissive consensus largely applies to the first three decades of European integration, in which the demand for integration was driven by economic interests of organisations, and the implications for the European citizens were limited at best, as the agreements made at the European level were done so without transparency (Stone Sweet & Brunell, 1998; Hooghe & Marks, 2009).As Hooghe and Marks (2009) argue, permissive consensus amongst the European people has been replaced by constraining dissensus, i.e. increasing Euroscepticism.
The elitist approach to policy-making is often levelled at the Commission, as its members are neither directly nor indirectly elected to office, and therefore have come to represent the top-level of EU elitism. However, an elitist approach can also be taken towards the Members of the European Parliament (MEPs). Jensen (2013) applies the concept of ‘elite socialisation’ by claiming that MEPs will over time become more European in their views because they work along political lines, rather than national borders, which poses a challenge to fully focusing on national interests. Therefore the strong European stance of the Parliament often makes it a natural ally for the Commission (Jensen, 2013).
The signing of the SEA in 1986 demonstrated a significant renewal of European integrative efforts that had stagnated during the 1970s. It also caused a revival of interest in neo-functionalism. An important spin-off from neo-functionalism was developed by Stone Sweet and Sandholtz (1998, 2012) known as supranational governance. Rather than attempting to formulate something general, they have developed a transaction-based theory of integration stating that integration is more likely to occur in sectors with considerable transnational trade between Member States. The high cost of transnational trade associated with compliance with different national rules creates incentives for national governments and interest groups to begin shifting their policy preferences towards an expansion of competences at the supranational level. Once the first steps have been taken (e.g. through ECJ case law or secondary legislation) the process of integration with the particular sector becomes a self-sustaining dynamic that creates spillover into other sector and gradually reduces the power of the Member States to influence policy outcomes (Sandholtz & Stone Sweet, 1998).